The typical check processing procedure begins, for example, at a retailer or point-of-sale. The cashier enters all the purchases and the register provides a total. The customer writes out a check for a specific dollar amount and presents it as payment for the amount owed. If the account has not been black listed, then the checking account owner may leave the retailer with the goods that were purchased. At the end of the day, all checks are deposited with the retailer's bank.
An encoding process is then performed manually, with an operator physically handling each check, viewing the amount, and then keying it on the face of the check. The encoding speed per operator is typically 1,200 to 1,400 checks per hour. The encoded checks are then tallied and compared with the total on the deposit ticket. This process is commonly termed “proofing.”
The encoded checks are then shipped to a central processing location for the “capturing” step. High speed reader/sorters process the checks by reading and sorting the checks according to information printed on the MICR (magnetic ink character recognition) line located at the bottom of the check. The MICR information on the check includes the bank number, account number, check serial number, in addition to the encoded check amount. The checks are read and sorted by bank or some other designation according to the transit and routing information also present in the MICR line. A balance of credits and debits is then computed. The sorted checks and a cash letter listing each check and their amounts are then sent in a collection and transit process to the institutions owning the accounts that the checks are drawn on.
The transit process delivers the checks to the bank having the accounts the checks are drawn on, at which place another capturing process commonly termed “inclearing” is performed. Inclearing ensures that the checks are actually drawing on that bank's accounts, the amounts are encoded on the checks, the correct settlement amount is given to the other banks, and that the correct amount is finally settled or posted out of the customer's account. The checks may then be optionally returned to the checking account owner.
The period of time starting from tendering check at the point-of-sale to the time the check is finally funded by the money in the customer's account is called the “float” period. Typically, the float period may be up to two to three days. Consequently, collection is a very timely process for banks and businesses. In addition, the collection process is costly and somewhat risky due to the proofing, capturing, and inclearing steps noted above.